In The Housing Question, Friedrich Engels described the laws that regulated housing conditions in England in 1872 as the best in Europe. Those laws had emerged from epidemics in overcrowded industrial towns and cities, as the capitalist class had realised that “the angel of death rages in [the capitalists’] ranks as ruthlessly as in the ranks of the workers.” Engels’ central question was why the German state was not legislating its way towards solving the severe housing shortage of the 1870s. Today we are asking the same question of the UK government. It seems fairly likely that a major housing crash will be one of the many consequences of the pandemic. If that were to happen, it would come on top of a severe pre-existing housing crisis. What will the effects of this new, second, crisis be? How will the state respond, and what difference would it make?
The government does not build houses. Instead, its legislation merely tries to influence market forces. The state’s hope or expectation is that private developers, landlords and (to a much lesser extent) local councils will provide the housing that society needs. For that reason, it is just as important to understand the economics as it is to understand government policy.
The Last ‘Crash’
In trying to predict the consequences of the coming economic turmoil, a good first step is to look back at 2008 to examine why there was no fundamental change during or after that crisis. The last financial crisis saw 16 months of falling house prices before the staggering growth of previous decades resumed.
In the last couple of years there have been a number of interesting accounts of housing policy and finance in the UK (in particular Grace Blakeley’s Stolen, John Boughton’s Municipal Dreams, Raquel Rolnik’s Urban Warfare and Samuel Stein’s Capital City). Together, they give a compelling explanation of the financialisation of housing. Since the Thatcher government, housing has been successfully transformed into a valuable commodity, a creature of finance, as the state’s overarching policy has shifted from providing social housing to fostering a large private rented sector alongside an increasing number of owner-occupiers. The value of housing exploded by design. Short-life tenancies and easy evictions mean that rents and house prices can – and do – rise incredibly quickly. Steady increases in value mean that houses are extremely desirable commodities, and prices therefore rise even further. House prices increased in the UK fivefold since the 1950s, exceeding any other OECD country.
What’s missing from this analysis, though, is an account of the survival of the financial aspect of housing despite the financial turmoil of 2008. Even at their lowest post-crash ebb, real prices were £192,838 – almost double the real prices of the early 1980s. If the commodification arguments are correct – that the increased value since the 1980s consists of the financial aspect of housing – why did homes keep so much of that additional value during such a profound financial crisis? Why did prices not get much closer to their ‘pre-commodification’ levels? And why did property prices recover so much quicker and more thoroughly than the rest of the economy?
There are at least four reasons why housing, with the help of the state, was able to weather the storms of 2008. First, even in a crisis, landowners are among the ultimate recipients of society’s money. As Gary Stevenson explains here, landowners are the bottom feeders of the economy: even while other industries are failing, landlords will generally continue to receive rent for as long as the working class receives an income. Second, the UK is slightly unusual because housing is where bourgeois wealth is kept. The majority of UK landlords own just one rental property. The success of the Thatcherite principle of bourgeois home ownership has meant that the UK is less prone to the processes of financialisation (where housing comes to be owned by large private equity firms – see, e.g. David Madden and Peter Marcuse’s In Defense of Housing) than elsewhere in the world. In the US housing profits are rooted in mortgages and property development; in many other countries the private rented sector is the realm of larger, more commercial landlords; but in the UK there is a huge number of individual rentiers and homeowners whose personal finances are totally dependent on house prices, which are bolstered by a profitable private rented sector. The state cannot fail the UK’s rentier class.
For this reason, the most upsetting thing about the concern in the Labour Party for landlords’ human rights is that they have a point, of sorts. Any meaningful measures for protecting tenants from debt and homelessness would involve a direct challenge to private individuals’ rights to receive rent. While the government is content to see commercial capitalists and investors collapsing or making losses (airlines, restaurants, department stores, etc.), it is difficult to see the state making a radical intervention to deprive so many individual citizens of their rights to private property and income. Even if it wanted to, landlords could mount a vigorous challenge under Article 1 protocol 1 of the European Convention on Human Rights. Any Marxist critic of the capitalist state would probably agree with the landlords’ analysis that the protection of private property is a more important duty for governments than the social protection of the working class.
Third, in big cities, the private rented sector is the state’s chosen system of housing supply. Raquel Rolnik describes the UK’s position as being one of “asset-based welfare”: under Thatcher and Blair’s housing settlement, state provision (by local government) was successfully replaced by a large private rented sector. Many people, probably a majority of young people in cities, are now deliberately dependent on private landlords. The government cannot blow a hole in its own system of housing supply, just as it cannot fire half of the staff at the Department for Work & Pensions or knock down primary schools. Fourth, there has been a significant investment of global capital in London, which bolstered house prices in south-east England, as Anna Minton describes in Big Capital. London, which has the largest proportion of renters in the country, plays a disproportionate role in the national economy both in respect of house prices and more generally.
Aided and abetted by the state, the housing crisis emerged almost unchanged after 2008. In some places (such as the north of Ireland) prices have not yet reached their pre-2008 peak, but for most of the UK the commodification and finacialisation processes of the preceding 20 years simply carried on. We could see echoes of this ‘business as usual’ approach at the start of the current crisis. The government has done next-to-nothing about housing, and the Labour Party’s latest proposals follow the familiar path of mild state intervention to ensure landlords’ incomes. In fact, one of the interesting things about the current crisis is that the government’s approach was so bad that a senior judge stepped in to the breach, amending the rules of legal proceedings to grant temporary protection to tenants. As things stand we are likely to see a huge number of eviction claims starting in a few weeks’ time.
Where to Next?
It is a commonplace that, at the end of 2019, the UK was in the midst of a very severe housing crisis. The still-existing Thatcher-era laws had fostered a large private rented sector, which had outgrown the social housing sector. But the mechanisms that were designed to allow the private sector to flourish (light regulation, uncontrolled rents and short-life tenancies) also encouraged rents to rise very far, and very fast. By 2012, councils like Lambeth in inner London had publicly acknowledged that there was insufficient social housing and insufficient affordable private housing to meet the needs of its population.
The everyday reality of the housing crisis is, of course, well-known. Households are already pushed to their limits in terms of price, location and conditions, and there is a disproportionate impact on groups such as LBGT+ and BAME communities. No doubt this was why the Labour Party’s proposals to give tenants two years to pay off pandemic-related arrears met with such strong disapproval.
In terms of the state, the position is interesting. The system of “asset-based welfare” has reached its logical conclusion: the state is paying more and more money into private hands, and for a totally inadequate service. As rents rose, so did spending on housing benefits. Councils were increasingly allowed to accommodate homeless people in private housing rather than social housing (which, of course, is more expensive). Then, in 2017 the government passed the Homelessness Reduction Act, which imposed new duties on councils: the ‘prevention’ duty and the ‘relief’ duty in particular tend to involve public money being spent on private landlords.
Councils like Brent came up with inventive systems for funding their increasingly expensive housing bills: Brent refers its homeless households to a private company landlord that is wholly owned by the council (I4B Holdings); I4B rents accommodation to this captive audience at or above local housing allowance rate levels; and the profits go towards paying for the council’s housing spending. This amounts to the state (in the form of local councils) leveraging the profitability of the housing crisis to finance its own spending, but the state itself (in the form of the Department for Work and Pensions) is ultimately paying for it. This was the context in which the pandemic hit.
Everyone expects housing prices to fall in the short term. House sales have stopped almost entirely. The Daily Telegraph carries predictions about scale of the drop that vary from 3% to 30%. A roundup by City AM suggests that most property speculators anticipate a drop of less than 10%, and then a recovery in 2021. Economists at the LSE predict that there will be a drop in the short- and medium-terms but a drop so mild that (when coupled with the other financial consequences of the pandemic) it won’t make homes any more affordable. The housing crisis, like everything else, will apparently resume when all of this is over. These forecasts seem to be premised on a 2008-style calculation: there will be no change to the legal and economic superstructure that have led to finance-based growth. Is that a correct assumption?
The speculators are probably right to assume that, while economic factors chip away at the value of housing, the state will (again) do its best to protect the housing market from harm. The 2008 logic still applies, and we are already seeing the government making effort to re-start the property market, while the Labour party suggests that tenants act as a human shield for landlords’ finances. Whether this is a sustainable approach by the state depends on whether the social, political and policy tides will turn.
Engels argued that there is always a housing crisis for the working class under capitalism, but “this housing shortage [i.e. the crisis in Germany in the 1870s] gets talked of so much only because it is not confined to the working class but has affected the petty bourgeoisie as well.” In our housing crisis the petty bourgeoisie is affected in two contradictory ways: for some, serious housing problems have ‘trickled up’ (more affluent people are priced out of satisfactory housing); but at the same time the opposite is true for another section of the bourgeoisie. As Blakeley puts it: “homeowners came to rely on rising house prices, aligning their material interests with asset owners rather than wage earners.” Until now this second group’s demands have been taken more seriously, but it’s possible that the demands of the first group will gain political ground – particularly if house prices start to slide uncontrollably downward.
What will the broader economic consequences be? The root of the housing crisis is not that all housing is generally unaffordable. If a home is sold (or rented) at a particular price it must be affordable to someone. The effect of the housing crisis is that large numbers of people can’t afford to live in the homes that exist. And this may well change: given the scale of the impending economic crash, a very large number of people are likely to see a change in their ability to afford their housing costs, which will probably affect the market price of rents (and, thus, the profitability of housing more generally). As set out above, many households were already pushing the boundaries of affordability on 2019 incomes.
Will effective rent strikes happen? Since the creation of ‘no fault’ evictions, particularly in the context of a disparate landlord class, renters have had almost no power. They are constantly under threat of homelessness, and it is difficult to organise collectively. A shift in the balance of power between landlords and tenants might finally act as a check on the housing crisis. Will the government make good on its promise to abolish section 21 ‘no fault’ evictions? This is probably the single most important aspect of the Thatcher housing settlement because section 21 is not just about evictions themselves: its very existence makes the existing rent regulation regime in England and Wales (under sections 13 and 14 of the Housing Act 1988) functionally obsolete. Abolishing section 21 would thus reduce the profitability of the private rented sector, which has been driving up accommodation costs for so many decades.
There is a large range of other factors. The cladding and leasehold scandal might leave a large number of homes valueless and unsellable. Labour shortages might stall housebuilding. Councils may take inventive steps to cater for the newly-accommodated population of previously street homeless people. The rise in home working might see less demand for accommodation near city centres. There is very little certainty, but the combination of these factors means that there is the potential for the coming housing crash to be much more significant than the interruption of 2008-9. A serious change to the profitability of housing may start to undo the financialisation of the last few decades in a meaningful way.
Homes won’t disappear, and there will be no less supply. Researchers at the Bank of England have convincingly debunked the myth – so often repeated by petulant landlords – that by fleeing the market they could ruin everything. Pensions may fail. A very large number of people have staked their financial futures on house prices. But in a financial crisis pensions may fail across the board, and it is difficult to understand why housing should be the only investment that cannot result in a loss. Landlords may go bust, which could lead to problems for tenants. Housing conditions may decline as landlords are unable to carry out work, and landlords’ perilous financial circumstances may result in evictions for tenants.
The state will be forced to reflect on the housing question. If the Thatcherite model of endless profits finally fails, it will need replacing. The government has already committed to abolishing no-fault evictions (one of the key planks of the housing crisis) in the Queen’s Speech, and whatever comes next may need to be premised on a very different housing market. At best, there may also finally be a much-needed reduction in housing costs. For most of us, that would mean one less thing to worry about as the next economic crisis hits. But the government has made its own priorities clear – restarting the housing bubble, as soon as possible.